Surge in investment options

Tapiwanashe Mangwiro

Senior Business Reporter

ZIMBABWE’S financial landscape has in recent years undergone significant transformation, with a surge in new investment options and innovative instruments being introduced.

This development has been welcomed by investors, analysts and market players, who view it as a positive step towards a more robust and diversified financial system.

The launch of the Victoria Falls Stock Exchange (VFEX) in 2020 kick-started the operationalisation of the Victoria Falls Special Economic Zone, which is one of the key initiatives being implemented by the Government to stabilise the economy and attract foreign direct investment.

The VFEX has witnessed various listings — including debt instruments, secondary listings and depository receipts. This wholly owned subsidiary of the Zimbabwe Stock Exchange (ZSE) is playing a crucial role in mitigating foreign currency and settlement risks within the economy.

Furthermore, in 2022, the ZSE launched exchange-traded funds (ETFs) to broaden investment choices for the domestic market. An ETF comprises a basket of various stocks, mimicking the performance of a specific index. These indexes can be based on sectors like mining, agriculture and technology.

Marking a significant milestone, the first real estate investment trust (REIT) — the Tigere REIT — was listed on the ZSE in October 2022. Since then, an additional REIT has been added during the latest round of listings.

REITs enable companies to pool investor funds for real estate ventures, allowing investors to buy units and share the generated profits. To incentivise participation and deepen the capital market, the Government introduced legislation permitting REITs in 2019, followed by tax breaks for issuers in the subsequent year.

The Insurance and Pensions Commission (IPEC), the regulatory body for insurance and pension funds, highlighted in October 2022 how REITs could potentially address a key challenge faced by Zimbabwean pension funds: the valuation of property investments.

“We think the valuation dilemma is largely due to the absence of a secondary trading market for properties, particularly the unlisted property holdings. Therefore, we are convinced that REITs will go a long way in bringing transparency in the valuation of investment property,” said IPEC chairperson Grace Muradzikwa at the time.

According to research analyst Tafara Mtutu, these have been the best years for the ZSE for as long as anyone can ever remember, as the market saw five ETFs list, two REITs and a depository receipt on the VFEX, as well as the debt listing on the USD bourse.

“This is a period that we might not repeat anytime soon and investors are happy that the market was deepened. Gold coins also came to the party and investors are appreciating them,” Mr Mtutu said.

Investment managers, analysts and brokers have all been praising the Government for enabling them to deepen and widen the markets as they are known.

Zimnat Asset Management general manager Farai Gwaka believes new products such as ETFs and REITs, among others, are the beginning of an exciting new chapter for the ZSE and VFEX.

“We strongly support these new innovative product offerings and they expand asset offerings, deepen market liquidity and sophistication.

“We, therefore, commend the Government through SECZ (Securities and Exchange Commission of Zimbabwe) and the ZSE for supporting the required amendments to the Collective Investment Act, which have made these new innovations possible. An area of keen interest in terms of development, going forward, is the local bond market, which, in our view, is a sleeping giant, as compared to our regional and international peers,” Mr Gwaka said.

Karo Mining Holdings (KMH) in October 2022 listed a first-of-its-kind US dollar fixed income instrument on the VFEX as it floated a US$50 million bond with a coupon rate of 9,5 percent per annum.

Mr Mtutu said: “The lack of a vibrant bond market in the country handicaps local insurers and pension funds who typically depend on fixed income instruments to match risk in legal and quasi-legal obligations with risk in held assets in a process referred to as portfolio immunisation.”

Bonds as an asset class, however, have some disadvantages that interested investors should take note of.

Bonds are typically illiquid instruments compared to equity because fixed-income investors typically hold these instruments until maturity for the purpose of portfolio immunisation.

Zimbabwe’s money market is constrained due to negative interest rates that hit the economy for a while, and the current loss of value of the local currency. However, the market is not short of instruments as the Reserve Bank of Zimbabwe (RBZ), as well as the private sector, have products that are available.

The central bank, in July 2022, launched gold coins, which were sold to the public in a bid to curb an inflation spike that had eroded the local currency.

The move was announced by Dr John Mangudya, the governor of the central bank, as it disbursed 2 000 coins to commercial banks.

Economist Dr Alfred Mthimkhulu said: “The country is moving in the right direction within the money market sphere as such instruments end up leading us to more products such as the gold coin unit trust.”

In May 2023, the central bank released a gold-backed digital currency for peer-to-peer and peer-to-business transactions. It was also meant to act as a store of value as the country’s currency continues to lose ground against major currencies.

Ms Patience Patongamwoyo, a property practitioner for Seeff Zimbabwe, noted that the residential sector is performing well in the Zimbabwe real estate market, mainly due to demand from the diaspora and foreign buyers with higher disposable incomes.

“Although accurately priced properties tend to sell quickly, well-informed buyers typically purchase properties at an average price of 80 percent below the asking price. Sellers should ensure they set realistic asking prices to avoid disappointment,” she said.

According to Seeff Properties, in the current market, buyers are influencing asking prices.

“It is safe to say that it is a buyer’s market at the moment. Local residential buyers tend to look for more affordable properties and flexible payment terms, such as serviced residential stands and properties with title deeds,” Ms Patongamwoyo added.

According to the renowned global statistics company Statista, the real estate market in Zimbabwe is expected to reach a projected value of US$107,60 billion in 2024.

“Residential real estate holds the dominant position in the market, with a projected market volume of US$69,34 billion in the same year. This segment is expected to grow at an annual rate of -0,80 percent between 2024 and 2028, resulting in a market volume of US$104,20 billion by 2028,” they said.

In a bid to empower farmers and improve transparency in the agriculture sector, Zimbabwe launched the Zimbabwe Mercantile Exchange (ZMX) in August 2021.

This electronically driven platform allows farmers to directly connect with buyers, eliminating the need for middlemen and offering them the potential to receive market-determined prices for their produce.

Prior to ZMX, farmers often faced challenges like unfair pricing practices, delays in payments and limited access to reliable markets.

The introduction of ZMX is aimed at addressing these issues by providing a secure and efficient platform for trading agricultural commodities.

In the ever-evolving landscape of Zimbabwe’s financial markets, the past few years have been marked by significant strides and innovative developments. From the inception of the VFEX to the introduction of ETFs and REITs, the market has witnessed a remarkable expansion in investment opportunities.

These advancements not only signify a diversification of investment avenues but also reflect a concerted effort by both the Government and private institutions to bolster the economy and attract foreign direct investment.